E-levy inimical to financial inclusion and digital transformation

Electronic Money Issuers

I do not intend to delve into the merits and demerits of the E-levy in widening the tax net – which is debatable – or a source of revenue generation; because, of course, it will generate a revenue and figures show.

Taxation is not only a tool for revenue generation for present consumption, but also a means of nudging the citizens, as rational thinking economic beings, to adopt or influence a certain behaviour in their dealings or economic decisions for the benefit of their future and the economy as a whole. It is also used to drive the economy into a certain future direction. It then also becomes a sort of moral suasion tool for decision-making.

Economics 101 tells us that if we want to encourage the consumption of local rice, we increase duty on imported rice. If we want to discourage the use of ove-raged vehicles, we increase the taxes on them. If we want to protect the local poultry farms, we put high taxes on imported frozen chicken.

So what behaviour do we intend to encourage or discourage by taxing electronic transactions? Are we saying we want to discourage electronic transactions? Are we being encouraged to go back to cash transactions? What are the future consequences of the e-levy on development of that aspect of the economy called the digital economy – which is the comfort zone and playing field for the next generation?

Ghana, and for that matter Africa, is far behind in this digitisation and digital transformation agenda that will plug us into the digital world. In my opinion, this E-levy will derail the little, slow-paced progress we are making with financial inclusion through the adoption and diffusion of digital technologies.

Digitalisation requires inclusion of every citizen onto the digital platform, since the mode of payment is digital and not cash; hence the need for every Ghanaian to have some form of transactional account. This is either a mobile money (momo) account, focusing on the economically underprivileged as part of financial inclusion and to alleviate poverty; or a bank account for the financially sophisticated. This is to make sure we can all have access to some form of financial services.

There is no doubt the E-levy will generate revenue; but are we in such a desperate situation that we are ignoring the unintended, unplanned negative impact on various aspects of the digital economy, such as banking, pensions, e-commerce and shopping.

Impact on Banking

The cost of holding cash for banks includes having physical storage, insurance, cash-counters, cashiers, bullion-vans, police escorts and guards against armed robbery. We should not be fooled that this does not influence the pricing of the money they take as deposits or give as loans.

So banks, in finding a more efficient way of reducing cost, decided to digitise their operations and moved into electronic banking (e-banking). For example, introducing ATM machines capable of not only receiving and paying cash but cheque deposits as well. Corporate customers can also remotely capture their cheques for clearing without physically taking them to the bank, as well as make payments including salaries from the comfort of their offices.

Queues in banking halls have reduced since retail customers have had access to withdrawing money from ATMs and transferring money electronically to other beneficiaries. Debit and charge cards were made available so we can make point-of-sale transactions on our accounts. This technically transferred bank office operations to the customers; thereby reducing cost of printing pay-in booklets, and staff were redeployed to more value-adding tasks.

Traditional face-to-face banking worldwide then became a privilege, hence banks started charging for cash deposits and withdrawals in banking halls – but that made cost of ATMs free and remote electronic salary payments also free. This was to encourage the use of digital platforms so as to reduce the cost of holding cash. Holding coins has been another headache for banks, but with momo we are able to pay to the last fraction. This has been a relief to both banks and retailers.

With the E-levy, transferring money between your own accounts within the same bank – such as paying-off your credit card debit balance from your current account, or to third parties from your bank e-banking platform – is going to attract a tax. Will sending your bank an email to transfer money between your accounts or pay a third party attract the tax? If yes, are we saying banking back-office services are now taxable? If no, what do we expect the rational economic being to do?

Will ATM withdrawals be deemed electronic transactions, hence taxed? If yes, do we expect customers to now go back to queuing in the banking halls? If no, as economic beings, if taking cash from ATMs to make payments is less expensive then we will patronise that more – which will also have other adverse implications. The banks will then have to increase the number of cash replenishments in the ATM machines; and once they keep running out of cash, customers will lose confidence in the banks and want to withdraw their monies to keep at home for easy access and emergencies, since the ATMs cannot be relied upon.

E-banking will become unattractive and customers, as economic beings, are likely to roll back to the cash society. Are we reversing all the investments banks have made over the period to get us onto the digital platform? We should not forget that the collapse of some banks and financial institutions has already affected the public’s trust in saving with banks. It took time to build back trust and into getting us to have transaction accounts, momo accounts; and I believe the convenience was a key determinant. Now, are we being given a reason to keep our cash in our shops and homes?

Micro finance companies have reduced their cost of servicing customers by way of giving loans through momo accounts. Loans for small amounts such as GH¢500 for the petty trader are credited to their momo accounts. Is this an electronic transaction? If yes, is the micro finance company, the sender, supposed to pay for the tax? Who do we think will bear the incidence of that tax eventually? Will the lender now prefer to pay cash? Will the borrower also prefer to collect cash for such meagre sums instead of through the momo account, since any onward transfer will attract tax?

What about bank SWIFT transfers? Are they electronic transactions? Of course they are. Are they going to be exempted because relatively huge amounts belonging to high net worth individuals or businesses are transferred?

Impact on Momo Business

Should the consumers take decisions as rational economic beings, we will go back to transacting in cash. This will have a direct effect on development and deepening of the momo business for those trying to take advantage of this business opportunity to be self-employed. Mind you, the public service is choked.

Volumes will definitely drop, and the earning capacity by way of charges will dwindle. Those who need minimum volumes to cover certain fixed costs will have to leave the business.

Just as there was a run on banks during the collapse of some financial institutions, which made them unable to meet the cash demands and further led to their collapse, there is likely to be a run on momo vendors for cash withdrawals prior to implementation of the E-levy. Once they are unable to meet all the demands since deposits are not being made, trust in the momo business will go out the window and momo transactions we want to tax will self-destruct – a zero sum situation.

The Telcos give instant small emergency loans without collateral through momo accounts, which ordinarily the traditional banks will not do. This has been a life-saver for so many in the informal sector – that is, if they pay back. The E-levy will not only increase the cost of disbursing these loans but increase the credit risk. The levy is a flat rate not per annum, so even taking the loan for a week and transferring it to make payments will mean the momo account holder and beneficiary is paying an extra 1.75% on the amount for just a week.

Even if the interest rate on the loan is 5% per month, this will translate to 1.25% per week. The tax then becomes more than the cost of borrowing. The Telcos are likely to stop these lifeline loans due to the increased credit risk. The relatively poor citizen will suffer.

Impact on Informal Sector Personal Pensions

Ghana has one of the best and most-envied tax incentives in pensions in the world – the three Es model, wherein contributions, investment income and benefit payments are all tax-exempt. Most countries have two Es, with either the contributions, investment income or benefit payments being taxed.

This tax benefit, however, only affects the formal sector using the PAYE system. There is unfortunately no benefit to the informal sector in terms of tax incentives, and this is why we seem not to be making any headway with pensions in the informal sector. There is however a solution that is outside the scope of this discussion.

Legally, under our pension law, contributions are tax exempt. So how will this be addressed if contributions being made by those in the informal sector into their 3rd tier personal pension account have to be taxed when they pay by momo?  It is already costly to collect pension contributions in the informal sector for personal pension plans, and the Corporate Trustees have innovatively tried to use momo transactions – and this is catching on gradually.

If we tax momo transactions, then we should forget about widening pensions to include the informal sector since it will be an uphill task. The E-levy will no doubt derail this effort and affect development of the 3rd tier informal schemes. Another zero sum situation.

Impact on Shopping and Purchases

Using debit cards and credit cards at Point-of-Sale terminals in shops and fuel stations is also a form of electronic transaction. Is the E-levy going to cover these transactions? If yes, then cost of goods are going to go up and the consumer as an economic being will rather take money from the ATM in the shopping mall or fuel station to make payment. What about charge cards such as E-zwich cards and other prepaid visa or mastercards? Are we going to be taxed for using them? If yes, are we really interested in the so-called cash-lite society?

Let me share one story of the advantage in using momo accounts as a financial inclusion tool. I was travelling from Takoradi to Accra and stopped to buy snails. They were being sold for GH¢400, but I only had cash of GH¢250 and did not have cash in my momo account either. The seller trusted me enough to give me his momo number so I could make payment later to him – which I did the next day.

Without the momo account, this boy standing by the roadside would have lost a sale. Now with the E-levy, I doubt if I would have accepted to make payment through momo. No cash, no purchase – hence no sale or he discounts the cost of the levy. I can do without the snails, but he cannot do without the money.

The theoretical notion that the sender will pay the levy might not always be the case. In cash bargains, as in my snail story, at times the seller is more desperate. The relatively rich we intend to tax will take advantage of the poor, who might eventually bear the tax’s cost by way of a discount if payment is to be by momo. Who is becoming poorer?

Impact on Petty Robbery/Pick-Pocketing

My observation is that reports of pickpockets and petty robbers stopping and attacking people on the streets and their homes for cash has reduced, because they know people seldom keep cash on them but rather in their momo accounts. This is why they have now moved into e-robbery, cybercrime through social engineering.  The recent physical attacks as reported have been on the momo vendors who they know have the cash.

Once people start holding cash again, these physical attacks on individuals might restart and the points of attack are likely to be increase.

Way Forward

The digital platform is an environment the youth are comfortable with, so it creates a big opportunity for young entrepreneurs with little or no initial capital to create a trans-border market and reach out to potential clients.

Government, as part of the e-governance agenda, must deliberately develop for the safety of consumers and SME businesses a ‘Plug and Play’ secured website with payment systems, e-marketing tools and, especially, e-taxation tools already embedded in the platform to form part of the business registration process.

This will not only protect SMEs and reduce the cost of having their own businesses on-line as ‘start-ups’, but also nudge them to go online with an opportunity to expand the tax net to SMEs. Without an online presence, the future business – no matter how small – will not survive; hence, we need to encourage having an on-line presence.

The next generation will only transact online, and once the digital platform becomes a way of life with this Plug and Play secured websites, certain transactions which in the traditional economy are not taxed – such as pension payments, fees payment, tax payments and payment of utilities – can be easily exempted in a module linked to the beneficiaries.

The embedded taxation tools will make it easier to pay the tax on what hitherto the traditional economy could not capture. That is the advantage of understanding the business side of information and communication (ICT) technologies, how to use it and what you want it to do by first conceptualising it before the technical people get you what you want.

Nothing is impossible. The only limitation with ICT technology is the limitation of one’s imagination and conceptualisation. You need to think not just outside the box, but without a box. Why do we want to destroy a good opportunity to catch up with the rest of the world? Do we still want to become a developing country even in the digital world when we all started on a level playing field?

The worst situation is to impose the tax on the charges and not the principal sums; and the monies raised should be used to improve cybersecurity and expand access to the digital platforms, free Internet hotspots in certain areas, for our own use and not to develop roads – which is what road-tolls have to do. This will make sense. 


What is not taxed in the traditional economy should not be taxed in the digital economy – and technology can easily exempt it. The good news is that, with the same technology, the tax that is capable of being avoided or evaded in the traditional economy can easily be captured in the digital economy once we make electronic transactions a way of life – which is the only logical way forward for the next-generation e-businesses and e-consumers. This will be an innovative way of using technology to expand the text net instead of deepening it as the E-levy is most likely to do.

Is Ghana in such a revenue-desperate situation? Taxing electronic transactions is a ‘no-brainer’, one-dimensional, myopic decision that will generate the revenue for today’s consumption but set up the present and unborn next generation to fail in the digital world and be disadvantaged to the rest of the world. The financial inclusion and digital transformation agenda will be derailed – making the future generation e-slaves once again. I guess they will cross the bridge when they get there. A zero-sum game.

The author is a Chartered Banker. He holds an MBA (IT Management), an LLB and LLM (IT & Telecommunication) (visit: Kofianokye.blogspot.com; contact: [email protected])


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